Mr. Federico P. Bajar, Jr.

April 11, 1985 Mr. Federico P. Bajar, Jr. 181 A. Lopez Jaena St. La Paz, Iloilo City Sir : This relates to your letter dated March 25, 1985, requesting the opinion of this Commission on the queries posed therein. It appears therein that your client, the Rural Bank Mina (Iloilo).Inc.,has been directed by the Central Bank of the Philippines to increase its authorized capital stock from P500,000.00 to P1,500,000.00, or an infusion of additional fresh capital to the tune of P236,000.00. The Rural Bank of Mina (Iloilo),Inc. has filed to hold its annual stockholders' meeting for the past two (2) years due to lack of quorum. Allegedly, the Relatos family group, holding 42% of the voting shares of the bank has failed to attend in person or by proxy any scheduled stockholders' meeting of the bank. Such was brought about by the arrest of Engineer Manuel Relatos, (President),who was charged with malversation of funds in the amount of P226,985.85. Hence, your queries, quoted hereunder: a. How can stockholders amend the articles of incorporation of the bank when 2/3 votes cannot be secured from the bank stockholders? b. The bank's authorized capital stock of P500,000.00 are almost fully subscribed leaving an amount of P69,600.00 as the unsubscribed portion. How can stockholders infuse the needed capital of P236,000.00 when the unsubscribed portion is only P69,600.00 without first amending the bank's incorporation papers? c. A writ of attachment will be handed by the court sooner or later on the shares of Engineer Relatos. If ever the bank can have a favorable stand on these shares, can the bank treat these as "treasury shares"? In connection with your queries, the pertinent provisions of the Corporation Code of the Philippines provide in part as follows: "SECTION 16. Amendment of articles . ...Any provision or matters stated in the articles of incorporation may be amended by a majority vote of the board of directors or trustees and the vote or written assent of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock ...." "SECTION 38. ...No corporation shall increase ...its capital stock ...unless approved by a majority vote of the board of directors and, at a stockholders' meeting duly called for the purpose, two-thirds (2/3) of the outstanding capital stock shall favor the increase ...of the capital stock ...." In reply to your first query, please be informed that in the absence of the requisite vote of the Board of Directors and stockholders as quoted in Section 16 of the Corporation Code, your client cannot in any manner amend its articles of incorporation. cdlex Relative to your second query, inasmuch as the unsubscribed capital stock of the Rural Bank of Mina (Iloilo),Inc. is limited to only P69,600.00, and there being no possibility at present for the corporation to increase its authorized capital stock, the requirement of the Central Bank for the infusion of additional fresh capital in the amount of P236,000.00 can not be met. On the matter of attachment of shares, our rule is that the person having the legal title to the stock is the person entitled to vote, in the absence of an express charter or statutory provisions to the contrary. (5 Fletcher, Cyc. Corps.,sec. 2027) Our statute on the matter provide thus: "In stock corporations, every stockholder entitled to vote shall have the right to vote in person or by proxy the number of shares standing . . . in his own name on the stock books of the corporation . . . ." (Section 24, Corporation Code of the Philippines) "The right to vote at a stockholders' meeting depends upon the ownership of the stock as disclosed by the stockbooks of the corporation, and a registered stockholder must be allowed to vote irrespective of any question of bona fides." (Fletcher, Supra.,sec. 2023) "In order that a creditor may acquire a lien by virtue of his attachment, it is not alone sufficient that a writ of attachment has been regularly issued by a competent authority, or even placed in the hands of an officer, but there must be actual and valid levy on the property of the debtor, and until, such valid levy has been made, the attachment creditor has no right in his debtor's property ." (Moran, Comments on the Rules of Court, Vol. 3, 1980 ed.,p. 11. Emphasis supplied) Should the bank reacquire the shares of Engineer Relatos through some lawful means, these become treasury shares. Acquisition of treasury shares does not reduce the number of issued shares or the amount of stated capital stock and their sale does not increase the number of issued shares or the amount of stated capital. (11 Fletcher, Cyc. Corps., 1971 Rev. Vol., sec. 5088, at 38). "Treasury shares shall have no voting right as long as such stock remains in treasury." (Sec. 57, Corporation Code of the Philippines). In this connection, "whenever the general corporation law disqualifies shares from voting on any matter, they are not considered outstanding for the determination of a quorum at any meeting to act upon, or the required vote to approve action upon, that matter under any other provision of the general corporation law or articles or by-laws." (Ballantine & Sterling, California Corporation Law, Vol. 1A, 1982 ed., sec 171.01 at 9-32) Accordingly, should the shares of Engineer Relatos become treasury shares, and hence disqualified from voting, the Rural Bank of Mina (Iloilo),Inc. stands another chance of obtaining a quorum of stockholders meeting for the amendment of the articles of incorporation of the bank and its increase of capital stock in order to meet the Central Bank requirement of infusion of fresh capital. Please be advised accordingly. Very truly yours, (SGD.) MANUEL G. ABELLO Chairman